Operation management of Dilla University business

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1. OPERATIONS PLANNING AND CONTROL CHAPTER FOUR

2. 4.1. Aggregate Planning 2 Also known as the production plan is intermediate range capacity planning that typically covers an average time horizon of 2 to 12 months, which is particularly useful for organizations that experience seasonal or other fluctuations in demand or capacity. The goal of aggregate planning is to achieve a production plan that will effectively utilize the organization’s resources to satisfy expected demand

3. The Role of Aggregate Planning Integral to part of the business planning process Supports the strategic plan Identifies resources required for operations (i.e. for the next 6 -18 months) Details the aggregate production rate and size of work force required

4. Types of Aggregate Plans Level Aggregate Plans Maintains a constant workforce Sets capacity to accommodate average demand Often used for make-to-stock products like appliances Disadvantage- builds inventory and/or uses back orders Chase Aggregate Plans Produces exactly what is needed each period Sets labor/equipment capacity to satisfy periodic demands Disadvantage- constantly changing short term capacity Hybrid Aggregate Plans Uses a combination of options May use a level workforce with overtime & temps May allow inventory buildup and some backordering May use short term sourcing

5. Aggregate Planning Options Demand based options Reactive : uses finished goods inventories and backorders for fluctuations Proactive : shifts the demand patterns to minimize fluctuations e.g. early bird dinner prices at a restaurant Capacity based options Changes output capacity to meet demand Uses overtime, under time, subcontracting, hiring, firing, and part-timers – cost and operational implications

6. Evaluating the Current Situation Important to evaluate current situation in terms of; Point of Departure Current % of normal capacity Options are different depending on present situation Magnitude of change Larger changes need more dramatic measures Duration of change Is the length of time a brief seasonal change? Is a permanent change in capacity needed?

7. Developing the Aggregate Plan Step 1- Choose strategy: level, chase, or Hybrid Step 2- Determine the aggregate production rate Step 3- Calculate the size of the workforce Step 4- Test the plan as follows: Calculate Inventory, expected hiring/firing, overtime needs Calculate total cost of plan Step 5- Evaluate performance: cost, service, human resources, and operations

8. Plan for Companies with Tangible Products – Plans A, B, C, Plan A: Level aggregate plan using inventories and back orders Plan B: Level plan using inventories but no back orders Plan C: Chase aggregate plan using hiring and firing Plan D: Hybrid plan using initial workforce and overtime as needed OTHERS………………..

9. Aggregate Planning Bottom Line The Aggregate plan must balance several perspectives Costs are important but so are: Customer service Operational effectiveness Workforce morale A successful AP considers each of the above factors

10. Master Production Scheduling Master production schedule (MPS) is the anticipated build schedule MPS is often stated in product or service specifications rather than dollars MPS is often built, managed, reviewed and maintained by the master scheduler

11. Planning Links to MPS 11

12. Role of the MPS Aggregate plan: Specifies the resources available ( e.g .: regular workforce, overtime, subcontracting, allowable inventory levels & shortages) Master production schedule: Specifies the number & when to produce each end item (the anticipated build schedule) Disaggregates the aggregate plan

13. Objectives of Master Schedule The Master Scheduler must: Maintain the desired customer service level Utilize resources efficiently Maintain desired inventory levels The Master Schedule must: Satisfy customer demand Not exceed Operation’s capacity Work within the constraints of the Aggregate Plan MPS as a Basis of Communication MPS is a basis for communication between operations and other functional areas Demand management and MS are communications ongoing to incorporate Forecasts, order-entry, order-promising, and physical distribution activities Authorized MPS is critical input to the material requirements planning ( MRP)

14. Developing an MPS The Master Scheduler: Develops a proposed MPS Checks the schedule for feasibility with available capacity Modifies as needed Authorizes the MPS Consider the following example : Make-to-stock environment with fixed orders of 125 units There are 110 in inventory to start When are new order quantities needed to satisfy the forecasted demand ? Projected Available = beginning inventory + MPS shipments - forecasted demand

15. The MPS Record 15

16. Revised and Completed MPS Record

17. Evaluating the MPS Rough-cut capacity planning: An estimate of the plan’s feasibility Given the demonstrated capacity of critical resources (e.g.: direct labor & machine time), have we overloaded the system? Customer service issues: Does “available-to-promise” inventory satisfy customer orders? If not, can future MPS quantities be pulled in to satisfy new orders? 17 Rough Cut Capacity Problem : a shoe company produces two models of dance shoes. over the past 3 years 72,000 pairs of model m have been produced using 21,600 direct labor hours and 5760 machine hours, and 108,000 pairs of model w using 43,200 hours of labor and 12,960 hours of machine time.

18. Determine the Planning factors: Labor Factors Machine Factors

19. Step 2 : Calculate the Workload Generated by this Schedule 19

20. Step 3 : Calculate the Capacity Needs for Each Resource for Each Time Period 20

21. Step 4 : Calculate Individual Work center Capacity Needs Based on Historical Percentage Allocation 21

22. Using the MPS to “Order Promise” The authorized MPS is used to promise orders to customers The MPS table is expanded to add customer orders and available-to-promise rows (inventory to satisfy new orders) ATP Action Bucke t = (beginning inventory + MPS shipment) less (customer orders before next replenishment). Available in period 1 ATP=MPS shipment – Customer orders between current MPS shipment and next scheduled replenishment in periods 3,5,7,8, & 11

23. Using the MPS to “Order Promise”… 23

24. Example of Revising the ATP MPS Record: A customer calls marketing willing to purchase 200 units if they can be delivered in period 5. The two tables below show how the system logic would first slot the 200 into period 5 and then how the order would be allocated across periods 1, 3, and 5 and adjusting the ATP row. 24

25. Stabilizing the MPS

26. Aggregate Planning Across the Organization Aggregate planning, MPS, and rough-cut capacity affects functional areas throughout the organization Accounting is affected because aggregate plan details the resources needed by operations Marketing as the aggregate plan supports the marketing plan Information systems maintains the databases that support demand forecasts and other such information

27. 4.2 Scheduling SCHEDULING OPERATIONS Companies differentiate based on product volume and product variety Differentiation affects how the company organizes its operations Each kind of company operation needs different scheduling techniques Scheduling has specific definitions for routing, bottleneck, due date, slack and queue

28. Scheduling Definitions Routing: The operations to be performed, their sequence, the work centers, & the time standards Bottleneck: A resource whose capacity is less than the demand placed on it Due date: When the job is supposed to be finished Slack: The time that a job can be delayed & still finish by its due date Queue: A waiting line

29. HIGH-VOLUME OPERATIONS High-volume, also called flow operations, like automobiles, bread, gasoline can be repetitive or continuous High-volume standard items; discrete or continuous with smaller profit margins Designed for high efficiency and high utilization High volume flow operations with fixed routings Bottlenecks are easily identified Commonly use line-balancing to design the process around the required tasks LOW-VOLUME OPERATIONS Low-volume, job shop operations, are designed for flexibility. Use more general purpose equipment Customized products with higher margins Each product or service may have its own routing (scheduling is much more difficult) Bottlenecks move around depending upon the products being produced at any given time

30. Low-Volume Tool – Gantt Charts Developed in the early 1900’s by Henry Gantt Load charts (see below Figure) Illustrates the workload relative to the capacity of a resource Shows today’s job schedule by employee

31. Progress charts: Illustrates the planned schedule compared to actual performance Brackets show when activity is scheduled to be finished. 32

32. Other Scheduling Techniques Forward Scheduling – starts processing immediately when a job is received Backward Scheduling – begin scheduling the job’s last activity so that the job is finished on due date

33. How to Sequence Jobs Which of several jobs should be scheduled first? Techniques are available to do short-term planning of jobs based on available capacity & priorities Priority rules: Decision rules: to allocate the relative priority of jobs at a work center Local priority rules: determines priority based only on jobs at that workstation Global priority rules: also considers the remaining workstations a job must pass through

34. Commonly Used Priorities Rules First come, first served (FCFS) Last come, first served (LCFS) Earliest due date (EDD) Shortest processing time (SPT) Longest processing time (LPT) Critical ratio (CR): (Time until due date)/(processing time) Slack per remaining Operations (S/RO) Slack /(number of remaining operations)

35. Example Using SPT, EDD 36